tv Nightly Business Report PBS August 6, 2012 4:30pm-5:00pm PDT
>> this is n.b.r. >> tom: good evening. i'm tom hudson. susie is off tonight. a rescue for knight capital. the trading firm stays in business thanks to a $400 million investment. erika miller reports on a take- over offer for best buy. the founder of the struggling electronics chain wants to take it private. and the mars rover has landed on the red planet. we'll see what u.s. companies hope to gain, by signing on to the mission. that and more tonight on "n.b.r.!" a $400 mlion lifine today for knight capital group, a
company that makes up some of the plumbing of the u.s. stock market. the market maker has been fighting to survive since a trading software update went hay-wire last week, leading to hundreds of millions of dollars in losses, it's stock price cut by two-thirds and now a rescue by some of its competitors. >> reporter: the deal by a half dozen wall street firms to invest in knight allowed the company to, quote, "resume normal operations immediately," end quote, according to knight. those behind the $400 million deal are investment banking firms jefferies, stephens and stifel financial, private equity giant blackstone, trading competitor get-co and customer t.d. ameritrade. ameritrade was one of knight's big customers that stopped doing business with it after wednesday's trading trouble.
ameritrade has since returned as have other big customers. as for its investment in knight, an ameritrade spokesperson tells n.b.r., quote, "we have an interest in preserving choice and competition in the markets," end quote. knight capital matches buyers and sellers of thousands of stocks and billions of shares. it also buys and sells stocks itself, helping keep money flowing, so when it's new trading software had a problem, the firm was stuck with hundreds of millions of dollars in losing trades. that sent shareholders fleeing, driving down its stock price, leading knight to look for help. but the assistance comes at the expense of diluting current shareholders interest. that pressured knight stock today, down 24%. knight's rescuers get preferred stock that may be converted to common stock at $1.50 per share plus a 2% dividend. the deal represents a 73% stake in the company. the investor group also gets three new seats on the board of directors of knight. >> tom: all this week, we're looking at you, the everyday investor, and what problems like the one at knight capital are doing to investor confidence. you may remember the last time a computer system sent the stock prices spiraling. it happened in may 2010 and was called the flash crash. it led to new rules on when
firms get a do-over after a computer error. knight asked for just such a do- over, pleading with the securities and exchange commission to be released from mistaken trades. the answer back was "no." darren gersh reports on the firm line from washington. >> reporter: this is really a story about a bailout that didn't happen. knight capital group asked the securities and exchange commission for special help. exchange rules set strict limits on when trades can be reversed. in knight's case, the rules say trades made by mistake that are more than 30% off of the real market price can be undone. knight wanted more trades busted, but regulators said no. the message was clear. once you make a trade, unless something has gone incredibly wrong. your word is your bond. you make a trade, you are expected to live up to it. people familiar with the matter say regulators are sending a clear message to investors: the rules on erroneous trades are meant to provide markets with certainty and they worked in this case. another message: firms need to have incentives to be careful and what happened to knight is a big incentive. >> right now i think that every
i.t. manager is going to his boss and saying, "give me a bigger budget so i make sure this isn't going to happen here." >> reporter: but that does not reassure critics who fear wall street firms have created computer systems they can't control. >> it is not a glitch when in less than 30 minutes over 150 stocks on the new york stock exchange vary wildly in purchases and sales and prices. >> and there's essentially haywire in the markets. that's not a glitch. that's a huge problem. it's a red flag and people better start paying attention. >> reporter: while the s.e.c. took a tough line with knight capital, there are growing concerns about the ability of regulators to police the street. >> regulators and regulation generally can't keep up with what's going on in the markets. it's just that simple. now one of the main reasons for that is that there is a fairly ssiveffo led by wa street and its allies to defund the agencies so they can prevent them from putting financial reform into place. >> reporter: before the computer
mistake, knight handled 20% of the trading in shares like apple. it was a well-respected and innovative firm and all that blew up in just half an hour. darren gersh, "n.b.r.," washington. "nightly business report" >> continuing to reshape the investment market. >> join the discussion online atacebook a twier. how confident are you in the technology that powers the market? will it change how you trade and invest because of the technology. join us online. >> on wall street, investors. helped the major averages to fresh three-month highs, despite selling in knight capital shares. the dow rose 21 points, the nasdaq added 22 and the s&p 500 gained three points. one other note about policing the markets, a major british bank was accused today of hiding over 60,000 illegal transactions with iran over the past decade. those transactions made by stdard chartered p.l.c. were valued at over $250 billion.
new york state's department of finacial services threatened to revoke the bank's license today and called it a quote, "rogue institution." so far, standard chartered is not commenting. ifrmentd a billion dollar bet may be play paying off sooner than comcast hoped. and it may actually turn a profit. nbc has been hit with the criticism, too much focus on the americans, not enough live coverage, hasn't heard the
television audience numbers in the u.s. rough 10 days. mcast olympic ratings averaged 3.6 million viewers up 12% from beijing, 28% higher than the athens games in 2004. >> porter bibb is with us. porter, is it something that comcast is doing with the coverage or the games themselves. it's mostly the games themselves, and the fact there's not a lot going on in the dog days of the summer of 2012. >> basically it's the fact that this olympics has drawn a tremendous amount of attention from the publicoose reflected in the numbers. they've never had such great ratings since 1960 when cbs first broadcast the rome olympics. >> tom: talk to us about the
opportunity then. this opportunity comes at a significant cost, more than a billion dollars invested. comp cast sold a billion dollars in advertising. can they go back and ask for more advertising nowhat ratings >> they get a premium when they exceed the ratings, yes. but the biggest advertiser, interestingly enough on this olympic tenure is nbc. they're hoping to shore up their ratings throughout the year. >> nbc has been wallowing behind the major networks for years. >> tom: i want to talk about the investors. mcast is estimated a $200 million profit, and spent $1.2 billion for the rights to produce the program. is this a good return for shareholders? >> ttion never been a good return in terms of bottom
line, but considered by the tv executives in the suites to be the best promotion for their networks that money can buy. it rivals the super bowl and the way the oscars used to command this kind of an audience and don't anymore. >> certainly, shareholders are attracte on thetock. >> you have to realize that nbc television is a small part of the comcast empire. they're the largest cable operators in the world, and the largest internet service providers. they reap huge profits from nbc university cable channel, not just television networks. sympt that the way you lev leverage the next games? is that the lesson here? >> they bought this olympics and the summer and winter olympics
>> they will have to change the model because the next rio in 2016 is going to be online digital internet. not like this one. these decisions nbc made were two and a half years ago when they acquired the rights and they didn't anticipate the ipad and internet profueg. >> and the deliver sepatchy, it's not very good. >> tom: do you have any position in comcast by the way, porter? >> none. >> tom: porter bibb with us, media tech capital partners.
>> best buy founder wants the stores back. shultz has offered to take the stores private. the offer is 24 to $26 per share. ho the higher price, it values the company at $8.8 billion. erica miller in nhattanith whatould be one of the biggest buyouts in recent years of an american retailer. >> best buy founder has made a generous offer for the stores but faces an uphill battle getting the board to approve it. in a public letter. addressed to best buy's board, richard schulze says quote, "bold and extensive changes are needed for best buy to return to market leadership." he is proposing to buy out the company, using his own money, private equity funds and some debt. so would going private be the right strategy for best buy?
>> it may make sense for best buy to ba privately held company,speclly youave the backing of private equity. with retail and turnaround experience. frankly, this company has a lot of work ahead of them to stay competitive and stay relevant in the eyes of consumers. >> it's a moment of truth for the retail electronics chain schulze founded in 1966. >> reporter: part of best buy's problem is so-called showrooming. that's when customers browse the store, but actually place their orders elsewhere, often at online sites like amazon. an even bigger issue is the enormous size of most stores, a lic of a bygone a. >> in the early part of the 90's through the early part of the 2000s. consumers had no problems. they were shopping in stores for tvs, video games, cds were a big part of their consumer electronics budget. but as that shifted to digital distribution format of the last several years, it has left a gaping hole in best buy stores.
>> reporter: schulze will clearly face big challenges turning his offer into a deal. first, he needs to get the approval of all best buy board members before signing a deal with private equity partners. he will likely have trouble getting the support of interim ceo mike mikan, who is gunning for a permanent position at the helm. second, schulze will have to detail his turnaround plans, which are vague at this point. the third issue is money. the board will likely try to get a higher offer, if it supports a deal at all. and could make it harder for schulze to secure financing. and don't forget schulze was elbowed out as chairman in the spring, after an internal audit found he knew former c.e.o. brian dunn was having an inappropriate relationship with a female employee. that alone is unlikely to be a dealbreaker. but it may mean some board member resistance to putting him back in charge. >> tom: why does shultz make
this offer in public? why not negotiate privately with the board? >> in his lerlt shultz said he would prefer private noerkdss but the board was dragging feet, so he had no choice but to take the campaign public and hope best buy sharolders would support him. >> tom: it caused a ruckus in the stock. what's the next step? when will we hear from the board? >> it's unclear at this point. all we know is best buy hasn't confirmed the offer, and don't know when it will respond. >> a key time. holidays around the corner. turnarounds with easier said than done this time of year. what is needed to do to discourage the showrooming and turn the shopping into buying? >> best buy's proble is format. 50,000 sare feet on average of retail space doesn't make sense. it needs to go to a smaller formatted store. that's the biggest challenge. it also needs to emphasize the
most profitable product lines like mobile phones. >> tom: eric miller tonight in new york on best buy. thanks, erica. july was a disappointing month of sales for general motors at home, but not so in china. the u.s. auto company set a sales record there last month. but the road ahead in china could be dicey for g.m. and other auto companies. diane eastabrook has details. >> reporter: g.m. bucked fears of a slowing economy in china last month by selling 15% more vehicles there than it did during the same month last year. among the biggest sellers for g.m. were buick excelle models. while auto sales in china have been strong compared to last year, they've actually been declining month over month this year. a possible sign of a cooling chinese economy. june sales slid nearly 2.5% from may and sales were also down the two months before that. still u.s. auto manufacturers are betting big on china. g.m. is the market leader,
selling more than 2.5 million vehicles there last year primarily through joint ventures. ford is increasing its exposure there as well, planning to add six new plants in china that will produce more than a million vehicles by 2015. diane eastabrook, "n.b.r.," chicago. >> tom: some modest gains drove the major u.s. stock indices to new three month highs today. the day started out with the s&p 500 jumping on the heels of gains in european and asian markets. the was headline onomic data today as the buying cooled somewhat in to the closing bell. the index finished up a fraction. but it was enough for it to continue the trend since june of higher highs and higher lows. this is the s&p 500's highest close since may second. trading volume backed off from friday's pace. 645 million shares on the big board. just over one and a half billion on the nasdaq. it was a mixed market with six of the ten major sectors higher. material stocks led the gainers,
up 1.1%. technology added 0.7% steel stocks were behind today's gain in the materials sector. many of these manufacturers have struggled under weaker demand and lower pricing. but we have seen some buying after a string of better than expected earnings and stocks hitting recent lows. u.s. steel was up 5.6%. titanium metals rallied 4.5%. both of these are their highest prices since mid-may. cliff's natural resources added 2.7%. today was the first monday since may the dow jones industrial average posted a gain. and two ofhe top 3gainers are in t tech instry. hewlett-packard was one, up 2.4%. this buying comes after h.p. sank to a seven and a half year low late last week. cisco is another big tech stock that's been under pressure. shares gained 2.1%. volume was lighter than usual today. the biggest meat processor in
the u.s., tyson foods, may have to turn to brazil for corn. the company put that option on the table today thanks to the continued drought throughout the midwestern u.s. it comes after tyson reported weaker than expected earnings, coming in four centser sha below estimas. its beef business saw lower demand thanks to the controversy over a ground beef additive called pink slime by critics. falling pork prices hurt that business as well. the company went on to lower its revenue outlook for the year and that hit shares, falling eight percent. volume was more than three times normal. this is a new 52 week low for tyson. shares semi-truck maker navistar hit the gas, after federal environmental regulators submitted a final rule on if the compancan continue to pay fines and still sell engines that do not meet e.p.a. guidelines. the stock has been under pressure as it has been threatened with losing the ability to sell new engines that don't meet current emissions standards. the details of today's final
rule filing were not discloses, but shares jumped 10%. an interim rule allowed navistart to continue with its sales if it paid a fine. all five of the most actively traded e.t.f.'s saw modest gains. the biggest for the russell 2,000 and nasdaq 100 track funds. and that's tonight's market focus. >> tom: the virtl world of the internet has changed busesses from newspapers to retail. but the real world of video games continues to favor established names and not new- comers. tonight's word on the street: gaming.
debra borchardt is a markets analyst at thestreet.com. deborah, first of all explain the business differences between the digital gaming and traditional video games? >> well, a lot of the diblgital gamers, the way that they earn mon seputting advertising within the games or trying to get to you pay for different additional items like points and that type of model. but they're finding people want to play their games on the phones for free. they're called snacking games. you just play them for a little time when standing in line or waiting in a restaurant. you really don't want to pay additional money. whereas your traditional game company like act vision or ea. they make their money off one upfront buying the game which is pretty expense ifr. but they've determined ways to
upsell you. >> tom: you can have a multitude of revenue sources in the language of an m.b.a. student. the new elistration is zynga. big business through facebook, and this stock has been a disaster sinces its ipo. new lows. farmville is not working out. is the new model broken if it really is for zynga because they have all of their playing time on facebook, and facebook is starting to push the old a littled tos down, and zynga doesn't have a new title to get in new revenue. so as farmville loses attraction, it has to come up with a new title to attract new players. so it's hurt with the relationship with facebook and by not having a new hit name. >> tom: but even traditional companies like act vision are looked at as what's new, what's next? act vision had a decent quarter earnings-wise, a third of sales coming through a digital channel to cut out the
retail space and nice margins. but the stock sold off significantly and rebounded a bit today. >> right. they were beat up because they said the second quarter net income fell. some were concerned about the users for war of aircraft dropped. >> they have new titles coming up, and here you have farmville with zynga, and you can't really update. they haven't figured out how to built a franchise. the established companies were beat up for having franchises, but that's the big payoff. call duty. ack ups is coming out. these titles keep paying off. electronic arts. >> debra, do you own any positions in these stocks? >> no, i don't. >> tom: but we're going to guess you're a gamer. debra borchardt with the street.com.
congress has fled washington d.c. for a five-week summer recess, despite little progress on a host of bills covering everything from extending the bush-era tax cuts to interim drought relief and internet security. tonight's commentary says don't blame the g-word for all that inaction. she's veronique de rugy. seni resrch feow at e mercatus center at george mason university. >> what's really the problem in washington? well, if you ask washington, they'll tell you it's gridlock, and blame inaction on some new and hyper-partisan or ideological era. but while gridlock might be blamed for slowing things down, it can't be blamed for failing to address serious issues. welfare reform and balanced budgets in the 1990s were the product of gridlock that slowly gave way to consensus. and today's washington is more than happy to come together when it suits its own interests. for instance, just last week, congress managed bi-partisan support for other continuing resolution, an agreement that
allows the legislators to, once again, put off doing any real fiscal planning. in fact, congress hasn't managed to produce a federal budget in more than three years. washington's problem is not gridlock. it is an increasingly irresponsible government that has r fatoo ng bn le off the hook for performing the most basic responsibilities. so, whatever happens in november, this much is certain: unless taxpayers demand their president and congress act responsibly and do the work they were elected to do, so-called washington gridlock will be the least of our problems. i'm veronique de rugy. >> tom: nasa's rover curiosity has made a historic landing the red planet. curiity erced ma' atmosphe travelingt 13,000 miles per hour and safely touched down after slowing to a mere two miles per hour. it began transmitting photos
right away. ruben ramirez reports on the partnership between government and business that made "curiosity" possible. >> reporter: the big question of course, is there, or, has there ever been life on mars? well, this week starts a two- year, $2.5 billion mission on the red planet to try and find the answer. nearly three years behind schedule and almost a billion dollars over budget, nasa's curiity rover landed safely on mars. it the largest and most advanced spacecraft ever sent to outer space. intel, lockheed martin, general dynamics and siemens were just some of the companies that participated in the project. simens licensed its 3d modeling technology to nasa's jet propulsion lab to cut prototype costs. >> the techniques between public and private and the way that they can share costs, share risks and collaborate around technology is a great way to bring all these resources to bear. >> reporter: according to nasa, the public private partnership
created about 7,000 jobs at various times during the eight years it took to develop the rover. and, unlike in past decades of space exploration, in true social media fashion, you can follow the rover on twitter at mars curiosity. ruben ramirez, "n.b.r.," washington. >> tom: that's "nightly business report" for monday, august 6. goodnight, everyone. we'll see you online at nbr.com and back here tomorrow night. ptioning sponsoredy wp captioned by media access group at wgbh access.wgbh.org